NEWLYWEDS: GET ON SOLID FINANCIAL FOOTING BEFORE BUYING AN APARTMENT
Earlier in the week I counseled a couple that is getting married in a month. They said that both sets of parents were pushing them to buy an apartment within the first year of getting married. They said that paying rent is a waste of money and it’s better to take out a mortgage and buy an apartment, and that property in Israel always goes up so they are guaranteed to make money. I can’t tell you how many times I hear this, and I can’t tell how angry I get when I hear it.
Start off on right foot
Much like a building, for a marriage to succeed it needs a strong foundation. In financial parlance that means being debt-free, having a well-funded emergency fund, savings for a down payment and a budget. I don’t know too many young newlyweds that fit this description. I generally think that at least a year is needed for a couple to be married before they should start thinking about buying property. It is the biggest purchase they will ever make and to pressure them to make it when they hardly know each other is a grave mistake.
Rent is not a waste of money
Believe it or not renting is not the end of the world. Even in Israel where there is no real long-term rental market it still makes sense for a young couple, or anyone that doesn’t have enough money to afford a down payment. It’s not money flushed down the toilet. You actually get something in return for that money: a place to live!
When I point this out I inevitably get the response, “but rents are so high, how can a young couple afford it?” The simple answer to this question is that you do not have to live in Rechavia or near Dizengoff center. There are plenty of place to live that are more reasonably priced. We need to stop making all kinds of excuses and start taking responsibility for our finances. If you can’t afford something, no matter how much you want to have it, don’t buy it. Ridiculous, populist government solutions like capping rental increases are not the solution and will actually exacerbate the problem—but that is for another column. If you can’t afford to rent in Tel-Aviv, don’t. It’s that simple.
Sell at a profit
“You should always buy an apartment because you can sell it in a year or two for a profit”—this is a fallacy and propagated by people with short memories. Yes the Israeli real estate market has been on fire for the last 6-7 years, but do we remember 2001-2003 when prices dropped significantly and you couldn’t give away the best properties in Rechavia? No investment goes up in a straight line forever, none. To buy an apartment with the fallback position that if the mortgage payments are suffocating you can turn to sell it, sounds just like what happened before the sub-prime bubble popped in the US. That didn’t have a happy ending.
What to do?
If your goal is to eventually own an apartment, as with any goal, start taking the steps to achieve that goal. If you put every last shekel into an apartment purchase, and then the air conditioning breaks what are you going to do? Make sure that you are living within your means, saving money every month and paying down debts. Keep in mind that as you age your earning power will increase. Then save for a respectable down payment, so that your mortgage won’t be too big a burden. If you’re ready to buy one, you can visit sites like lowcountryrealestate.com/properties/sale and see available properties. Also, seek assistance from a complete conveyancing Glasgow to ensure that buying your desired property will be the best decision you make.
Buy following a common sense and responsible approach to living smart financially, when you eventually buy an apartment it will be a blessing and not a curse.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
